Ali Husain Rajabali speaks
on kse crisis
By AMANULLAH BASHAR
Jun 12 - 18, 2000
The primary objective of the stock market is to help economic growth of
the country through capital formation in the corporate sector. This principal aim,
however, adversely affected because of practice of heavy speculative trading at the stock
markets in Pakistan.
These observations were made by Ali Husain Rajabali, one of the senior
most members of the Karachi Stock Exchange while talking to PAGE on the recent
crisis of stock business which unfortunately led to default of a member of the KSE and
many others at Lahore Stock Exchange.
When asked to suggest measures to bring more stability to the stock
business and a risk free environment for investment in the stock business, Ali Husain
strongly recommended that in order avoid recurrence of such eventualities in future, a T+3
system and national clearing system, for the delivery of all the transactions, should be
introduced in Pakistan. This system not only will help achieving the main objective of
capital formation through stock business but also would prove an effective check on
speculative trade, which generally plays a mischievous role in destabilizing the market.
Elaborating his point of view, Ali Husain feels that Rs50 million
limits allowed to the members against their membership card and assets is another tempting
factor which incites the ambitious players to jump beyond their capacity. This exemption
limit should be reviewed immediately. All transactions should be collateralized against a
combination of at least 25 per cent cash and or at least other liquid securities. He said
that T+3 type of trades practiced in the modern exchanges has to be our ultimate goal to
attract genuine investors in this business.
The KSE management pleads that factors, which led to tumbling down of
the market, were in no way related to regulatory issues or lapse on the part of the
regulatory authority, which he said is a fact. The tactful handling of the issue by KSE
management, the market escapes big crisis. The game as a purely market-related activity
wherein certain market players had indulged in excessive over trading and had taken
positions far beyond their capacity. This position was being built up on the basis of COT
facility and that too without margin is available in the market.
When asked, Ali Husain Rajabali, how an investor can avoid such
recurrence, he said that Central Depository Company (CDC) has introduced Investors A/c
facility. This CDC answers to investor's problem by opening his account with CDC at a
nominal fee of Rs300 per month. This Central Depository Company is created to lookafter
all business accounts of the investors.
Ali Husain feels that significance of CDC needed to be highlighted more
both by the government as well as by the Stock Exchanges in the interest of improving the
safe investment climate in the stock business.
Regarding current state of affairs in the KSE, Ali Husain said that the
worst is almost over now. The current levels of index i.e. around 1400 plus is justified
with 100 plus or minus. The extraordinary upward trend when the index crossed 2000 mark
was somewhat an engineered state of affairs. Justifying his argument he quoted the price
of scrip which shot up to Rs150 from its actual market worth of Rs50.00. This was the
result of a rally mobilized by some ambitious players and putting excessive money by
virtue of COT arrangement, he said. Now the worst is over, he reiterated and described the
present situation as an opportune time for the investment. There are plenty of choice
scrips with strong fundamentals and good yields are available. He said that market could
further stabilize and improve if the present government goes according to its
privatization plans. He feels that privatization of even one public sector organization
could add noticeable strength to the index.
He added that the management of the Karachi Stock Exchange has handled
the crisis like situation with highest degree of prudence and responsibility that saved
the credibility of KSE. This is really commendable. He also appreciated the useful and
important role played by SECP in averting the crisis.